Friday, December 13, 2019

World Bank sees vulnerabilities in banking sector

The World Bank suspects vulnerabilities in the banking sector due to a rising trend in non-performing loans (NPLs) of commercial banks point.
The Nepal Development Update issued by the World Bank reads that the overall NPLs remained low – below the 5 per cent level – which seems stable but a rising trend in NPL point to some emerging vulnerabilities. According to the report, NPLs of 7 out of the 25 private commercial banks rose by 25 per cent, which means the banking sector that seems to be stable is not as stable as it looks to be.
Earlier too, the International Finance Corporation (IFC) had suspected banking sectors balance sheet. The balance sheets that looked clean are not as clean and they could have been doctored, the IFC had reported.
The increasing trend of NPLs follows a rise in the interest rates that are skyrocketing, which could deteriorate the quality of loans of banks. “The elevated lending rates have pushed some borrowers into default,” the report reads, adding that it is, however, not possible to identify the key drivers of deterioration in these seven banks since the central bank does not report NPL ratios by sectors.
NPLs are the loans of banks that are overdue by more than 90 days. The banks have to provision for the NPL amount, which will eat the profit of the bank.
However, bankers opine that there is no reason to worry with the current level of NPLs as it is the lowest in the South Asian region.
The World Bank report also concludes that all banks and financial institutions (BFIs) are well capitalised and meet the capital adequacy ratio (CAR) requirement – of 11 per cent – indicating that they have capacity or capital cushion to withstand any shock.
The central bank has also been time and again reminding banks not to be aggressive in lending.

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